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Romania - ECONOMY




Romania - The Economy

Romania

THE STALINIST ECONOMIC MODEL imposed on Romania after World War II survived the following four decades largely unaffected by the liberalizing reforms that gradually occurred in other parts of Soviet-dominated Eastern Europe. Indeed, in its degree of centralization, the pervasiveness of communist control, and the general secretary's personal dominance of economic policy making and implementation, the Romanian model arguably eclipsed even the Soviet archetype.

Through a highly centralized and interlocking party and state bureaucracy that reached from Bucharest to every farm and factory, the Romanian Communist Party (Partidul Comunist Romān-- PCR) set economic goals, allocated resources, procured and distributed industrial and agricultural output, controlled prices and wages, and monopolized banking and foreign trade. Ideological goals and the preservation of power and privilege for the party elite had superseded all other considerations in economic decision making--even including the maintenance of a minimum standard of living for the general population.

The 1980s were a period of extreme deprivation for most Romanians. Determined to retire as quickly as possible the foreign debt accrued during the previous decade and thereby reassert his country's political and economic autonomy, General Secretary and President Nicolae Ceausescu demanded enormous sacrifice on the part of ordinary citizens. His effort to build large foreign-trade surpluses required exporting basic commodities in short supply at home. Food rationing was reimposed in 1981 for the first time since the early 1950s, while the government continued exporting large amounts of food to earn foreign exchange. Consumers also faced chronic shortages of gasoline, electricity, and heat. Durables such as household appliances and automobiles were exorbitantly expensive, and their use was discouraged by the authorities.

In early 1989, Ceausescu proclaimed that Romania had finally rid itself of the onerous foreign debt and could resume the pursuit of its long-term economic goal--the status of a multilaterally developed socialist state by the year 2000. His vision of making Romania a "medium-developed" country by 1990 clearly had not come to fruition, as the economy had suffered numerous reversals since 1980. Western economists asserted that during much of the decade, industrial and agricultural output may actually have declined. This decline could not be confirmed by official statistics, which had become increasingly untrustworthy and clearly omitted many categories of information.

The economic stagnation of the 1980s followed three decades of impressive industrial growth, when Romania had maintained one of the highest rates of capital accumulation and investment in the world. Industrial output by the end of the 1970s was more than 100 times greater than in 1945. The most notable growth had occurred in basic heavy industry, particularly in the chemical, energy, machine-building, and metallurgical sectors. Romania had become one of the world's leading producers and exporters of steel, refined petroleum products, machine tools, locomotives and rolling stock, oil-field equipment, offshore-drilling rigs, aircraft, and other sophisticated manufactures. Light industry's share of total output, however, had declined from more than 60 percent before World War II to less than 25 percent by the 1980s. The PCR industrialization program had been able to draw on a rich natural endowment of basic raw materials, including the most extensive oil and gas reserves in Eastern Europe, coal, metallic ores and other minerals, and timber. Natural inland waterways and warm-water seaports facilitated domestic and foreign commerce. And numerous streams and rivers flowing from the highlands provided opportunities for irrigation and electric power generation. These natural advantages notwithstanding, the economy of the 1980s suffered a severe raw materials and energy shortage as a large share of the most accessible reserves neared depletion. Furthermore, years of careless resource exploitation had caused severe environmental degradation, with particular harm to the water supply, soil, and forests.

Equally as critical to Romania's postwar development as its natural resources were its large reserves of underemployed rural labor that could be mobilized and transformed into an urban proletariat. But already by the end of the 1970s, it had become clear that this resource also was being exhausted. Romania faced an incipient labor shortage of the sort that had already stricken its more industrialized neighbors. This shortage was brought on by a declining birthrate, the aging of the population, the emigration of skilled workers, and the squandering of labor resources through poor planning and management. All sectors of the economy suffered from low labor morale and productivity and a growing dissatisfaction with working conditions, wages, benefits, and the general standard of living. This dissatisfaction had even begun to surface in unprecedented strikes, demonstrations, and other acts of defiance.

The ambitious industrialization program had deprived agriculture of investment capital and manpower for most of the first four decades of communist rule. But even as late as 1982, 28.6 percent of the working population was still engaged in farming. Application of more modern farming practices and an ambitious irrigation and land reclamation program had steadily raised production. Grain output more than quadrupled between 1950 and 1980. Nevertheless, output consistently fell short of target and was generally inadequate for domestic and export requirements.

After decades of neglect, in the late 1970s agriculture had finally begun to receive investments at levels commensurate with its importance to the national economy. But by the early 1980s, the general economic crisis prevented importing the inputs needed to make the sector more productive. This development, combined with the counterproductive imposition of compulsory delivery quotas on private farmers and more centralized administration of the entire sector, resulted in agricultural stagnation through much of the 1980s.

<>ECONOMIC STRUCTURE AND DYNAMICS
<>NATURAL RESOURCES
<>LABOR
<>FOREIGN TRADE
<>INDUSTRY
<>AGRICULTURE

Romania

Romania - ECONOMIC STRUCTURE AND DYNAMICS

Romania

Evolution

From earliest times, the Romanian lands were renowned for their fertile soil and good harvests. As the Roman colony of Dacia, the region supplied grain and other foods to the empire for nearly two centuries. During the subsequent two millennia, a succession of foreign powers dominated the area, exploiting the rich soil and other resources and holding most of the native population in abject poverty. It was not until the middle of the nineteenth century that a unified, independent Romania finally emerged, opening the way for development of an integrated national economy.

But even after Romania had gained independence, foreign interests continued to dominate the economy. Large tracts of the best grain-growing areas were controlled by absentee landlords, who exported the grain and took the profits out of the country. Outsiders controlled most of the few industries, and non-Romanian ethnic groups--particularly Germans, Hungarians, and Jews-- dominated domestic trade and finance. The centuries of outside control of the economy engendered in the Romanian people an extreme xenophobia and longing for self-sufficiency--sentiments that would be exploited repeatedly by the nation's leaders throughout the twentieth century.

On the eve of World War II, agriculture and forestry produced more than half of the national income. Reflecting the country's limited economic development, about 90 percent of export income in 1939 was derived from raw materials and semifinished goods, namely grain, timber, animal products, and petroleum. The most advanced industry at that time, oil extraction and refining, was controlled by Nazi Germany for the duration of the war and suffered severe bombing damage.

For several years following the war, the devastated economy was burdened with reparation payments to the Soviet Union, which already by 1946 had expropriated more than one-third of the country's industrial and financial enterprises. By mid-1948 the Soviets had collected reparations in excess of US$1.7 billion. They continued to demand such payments until 1954, severely retarding economic recovery.

After the installation of a Soviet-styled communist regime, Romania's economic evolution would faithfully follow the Stalinist pattern. Adopting a centrally planned economy under the firm control of the PCR, the country pursued the extensive economic development strategy adopted by the other communist regimes of Eastern Europe but with an unparalleled obsession with economic independence. The development program assigned top priority to the industrial sector, imposed a policy of forced saving and consumer sacrifice to achieve a high capital accumulation rate, and necessitated a major movement of labor from the countryside into industrial jobs in newly created urban centers. The first step on this path was nationalization of industrial, financial, and transportation assets. Initiated in June 1948, that process was nearly completed by 1950. The socialization of agriculture proceeded at a much slower pace, but by 1962 it was about 90 percent completed.

Beginning in 1951, Romania put into practice the Soviet system of central planning based on five-year development cycles. Such a system enabled the leadership to target sectors for rapid development and mobilize the necessary manpower and material resources. The leadership was intent on building a heavy industrial base and therefore gave highest priority to the machinery, metallurgical, petroleum refining, electric power, and chemical industries.

Shortly after Nicolae Ceausescu came to power in 1965, PCR leaders reevaluated the development strategy and concluded that Romania would be unable to sustain the rapid rate of economic growth it had achieved since the early 1950s unless its industry could be streamlined and modernized. They argued that the time had come to assume an intensive development strategy, for which the term "multilateral development" was coined. This process required access to the latest technology and know-how, for which Ceausescu turned to the West.

Economic growth during the first twenty-seven years of communist rule was impressive. Industrial output increased an average 12.9 percent per year between 1950 and 1977, owing to an exceptionally high level of capital accumulation and investment, which grew an average 13 percent annually during this period. But with the concentration of resources in heavy (the so-called Group A) industries, other sectors suffered, particularly agriculture, services, and the consumer-goods (Group B) industries.

After 1976 the economy took a sharp downturn. A severe earthquake struck the country the following year, causing heavy damage to industrial and transportation facilities. Ceausescu's vision of multilateral development had made little headway, as the bureaucracy was unable to steer the economy onto a course of intensive development, which would have necessitated major improvements in efficiency and labor productivity. The population was demanding production of more consumer goods, and an incipient labor shortage was hindering economic growth. By 1981 the country was in a financial crisis, unable to pay Western institutions even the interest on the debt of more than US$10 billion accumulated during the preceding decade. Obsessed with repaying this debt as soon as possible, Ceausescu imposed an austerity program to curtail imports drastically, while exporting as much as possible to earn hard currencies. Rationing of basic foodstuffs, gasoline, electricity, and other consumer products was in effect throughout the 1980s, bringing the Romanian people the lowest standard of living in Europe with the possible exception of Albania. In April 1989, Ceausescu announced that the foreign debt had been retired, and he promised a rapid improvement in living conditions. Most foreign observers, however, doubted that he could fulfill this pledge.

<>Administration and Control
<>Banking

Romania

Romania - Administration and Control of the Economy

Romania

Stalin's Legacy

The Romanian economic model retained all the salient features of Stalinism, including state ownership of the means of production; communist party control of economic policy making and administration through interlocking party and state bureaucracies; democratic centralism, including concentration of decision-making power in the highest party executive organs and particularly in the person of the general secretary; annual and five-year economic planning; nonreliance on the counsel of technical and managerial experts in setting economic goals; forced deliveries of economic output to the state; pricing based on political and ideological considerations rather than market forces; reliance on mobilization campaigns in lieu of material incentives for workers; inflexibility and resistance to reform.

Ownership of Economic Assets

When the Constitution of 1965 declared Romania a socialist republic, the country had already made substantial headway in socializing its economic assets. And judging by Ceausescu's words on the occasion of his sixty-ninth birthday in 1987, the campaign to eliminate private ownership appeared irreversible: "One cannot speak of a socialist economy and not assume the socialist ownership of the means of production as its basis." The state owned and controlled all natural resources except for a steadily declining amount of agriculturally marginal land still in private hands. All of industry had been socialized, but for a small number of artisan workshops, which contributed less than 0.5 percent of total marketable output in the 1980s. Even cooperatives, categorized as socialist forms of ownership, had fallen into decline at the very time they were enjoying a renaissance in the Soviet Union and the other members of the Council for Mutual Economic Assistance (Comecon). Cooperative farms, for example, were considered ideologically less acceptable than state farms, which had priority access to rich land, fertilizers, machinery, and other inputs. And cooperative industrial enterprises accounted for only 4.3 percent of national output in 1984.

Dominance of the Romanian Communist Party

The Romanian economic structure was unusual in the extreme degree to which party and governmental hierarchies were intertwined and even formally merged. This fusion of bureaucracies was even apparent in the architecture of the capital city, Bucharest, whose skyline in the late 1980s came to be dominated by a massive new Palace of Government, housing both party and state agencies. All state administrative offices, from the national to the lowest local levels, were filled by carefully screened PCR careerists. As early as 1967, Ceausescu had called for administrative streamlining by eliminating the duplication of party and government functions. His solution was to assign responsibility for a given economic activity to a single individual.

Throughout the 1970s and 1980s, the merging of party and state organs gained momentum, affording the PCR ever tighter control over the economy. The process culminated in the emergence of national economic coordinating councils--administrative entities not envisioned by the Constitution of 1965. These party-controlled councils provided Ceausescu, who after 1967 held the dual titles of general secretary of the PCR and president of the Council of State, the means to dominate the economic bureaucracy.

One of the most powerful of the new joint party and state bodies was the Supreme Council of Economic and Social Development, which Ceausescu chaired from its inception in 1973. The new 300-member council coopted the authority to debate and approve state economic plans--authority constitutionally granted to the Grand National Assembly (GNA). The latter's role in the planning process became increasingly ceremonial, as real policy-making power shifted to the Supreme Council's permanent bureau--also chaired by Ceausescu. At a joint meeting of party and state officials in June 1987, Ceausescu announced the conversion of the permanent bureau into a quasi-military economic supreme command, further tightening his grip on planning while reducing the role of the governmental institution created for that purpose--the State Planning Committee. That same year, he signed a decree endorsing the 1988 annual economic plan even before obtaining rubber-stamp approval by either the Central Committee of the PCR or the GNA. Thus the general secretary had assumed absolute authority in setting economic policy.

Among other important joint party and state economic councils to evolve during the Ceausescu era were the Central Council of Workers' Control over Economic and Social Activities, which oversaw economic plan fulfillment; the Council for Social and Economic Organizations, which controlled the size and functions of the ministries and enterprises; and the National Council of Science and Technology. The latter was chaired by the general secretary's wife, Elena Ceausescu, who was emerging as a powerful political figure in her own right. In June 1987, it was announced that this body thereafter would collaborate with the Supreme Council of Economic and Social Development and would draft development plans and programs, thus giving Elena Ceausescu much of the authority constitutionally vested in the chairmanship of the State Planning Committee.

Ceausescu consolidated his control of the economy not only by creating new bureaucratic structures, but also by frequent rotation of officials between party and state bureaucracies and between national and local posts. In effect after 1971, the policy was highly disruptive. For example, twenty economic ministers were replaced in September 1988 alone. Rotation enabled Ceausescu to remove potential rivals to his authority before they could develop a power base. He justified the policy by attributing virtually all the country's economic problems to inept and dishonest bureaucrats intent on sabotaging his policies. Another control tactic was making highly publicized visits to factories, state farms, or major construction sites, where--usually accompanied by his wife-- Ceausescu would interview workers and front-line managers and solicit complaints about their superiors. The threat of public humiliation and removal effectively deterred the managerial cadres from independent thinking.

Administrative Hierarchy

The government body constitutionally endowed with supreme authority in administering the PCR's economic program was the Council of Ministers, whose members simultaneously held important positions in the party. The number of ministries fluctuated over the years because of repeated reform efforts to improve efficiency; in 1989, there were twenty-five ministries with a strictly economic mission. Supra-ministerial bodies known as branch coordination councils synchronized the activities of ministries in related sectors, for example, mining, oil, geology, and electric and thermal power; chemicals, petrochemicals, and light industries; machine building and metallurgy; timber, construction materials, cooperatives, and small-scale industry; transportation and telecommunications; investment and construction; and agriculture, food processing and procurement, forestry, and water management. The ministries were responsible for accomplishing the economic goals set forth in the Unitary National Socioeconomic Plan. They assigned production, financial, and operational targets and made investment decisions for the economic entities subordinate to their authority.

The first echelon of administration below the ministries consisted of the industrial centrale (sing., central). The centrale were analogous to the production associations of the Soviet Union and other Comecon countries. Conceived in the economic reforms of 1967 as autonomous economic entities vertically and horizontally integrating several producing enterprises as well as research and development facilities, the first centrale appeared in 1969. Their number rapidly dwindled from the original 207 to only 102 in 1974. Although in theory the centrale were created to decentralize planning, investment, and other forms of economic decision making, their functions were never clearly delineated, and in the 1980s they appeared to have little real autonomy. Their authority was limited to monitoring plan fulfillment and designating production schedules for the plants under their jurisdiction.

At the bottom of the administrative hierarchy were the enterprises and their individual production units. They received highly detailed production plans, operating budgets, and resource allocations from superior echelons and were responsible for accomplishing the economic directives that came down to them through the hierarchy. Notwithstanding official proclamations of enterprise self-management after the New Economic and Financial Mechanism became law in 1978, the managerial cadres on this level enjoyed autonomy only in the mundane area of streamlining operations to raise output.

State and cooperative farms held a position in the administrative hierarchy analogous to that of industrial enterprises. They received detailed production plans that specified what was to be sown, what inputs would be provided, and how much farm output was to be delivered to the state. After 1980, county ( judet) and village people's councils were responsible for fulfillment of agricultural production targets by the farms in their jurisdiction. Machine stations, analogous to Stalin's machine-and-tractor stations, had been set up to control access to equipment, thereby ensuring compliance with the PCR agricultural program. The manager of each machine station coordinated the work of, on average, five state and cooperative farms. In 1979, the stations became the focal point of a new managerial entity, the agro-industrial councils, which were intended to parallel the industrial centrale.

In addition to its sectoral administrative structure, the economy was organized on a territorial basis. In every judet, city, town, and commune, so-called people's councils--among their other functions--supervised the implementation of national economic policy by the enterprises and organizations located within their territory. The permanent bureaus of these bodies, without exception, were headed by local party chairmen, whose political credentials were validated by Bucharest. In 1976 a permanent Legislative Chamber of the People's Councils was established. Its membership--elected from the executive committees of the regional and local councils--debated economic bills before they were considered by the GNA.

Planning

Beginning in 1951, following the Soviet economic model, Romania adopted annual and five-year economic planning. As in the Soviet system, the principle of democratic centralism applied. Thus, the economic plans compiled by the central planning organs became the law of the land, and compliance was mandatory.

In theory, the Unitary National Socioeconomic Plan, as economic plans were officially called after 1973, was based on information on current plan fulfillment, requests for resource allocations, and recommendations for investments that originated on the lowest echelons and rose through the bureaucracy to the central planners. Such a system involved a certain amount of give and take as enterprises and centrale "negotiated" with the ministries for favorable production targets and resource allocations. In turn the ministries lobbied for their respective sectors to gain priority consideration in the state budget. But during the 1980s, input from lower echelons in the planning process received less consideration. In part, this development was due to the unreliability of information reported by the managerial cadres, from the local level up to the heads of the economic ministries themselves. Plan fulfillment data were supposed to serve as the basis on which future economic plans were compiled, but in the 1980s data became skewed when salary reforms--the so-called global accord--began linking managers' incomes to the performance of the economic units under their supervision. In 1986 this remuneration system encompassed nearly 11,000 managers and bureaucrats, even including the heads of ministries and the deputy prime ministers. In order to maintain their incomes, officials simply falsified performance reports. As a result, aggregate production figures were grossly inflated, and annual and five-year plan targets based on these figures became increasingly unrealistic.

Besides distorting production reports, managers resorted to other income-protecting measures that impeded the flow of accurate information to the central planners. Because wages and salaries were tied to plan fulfillment and severe penalties were levied for shortfalls--even when caused by uncontrollable factors such as power shortages, drought, and the failure of contractors to deliver materials and parts--it was in the interests of the enterprises, centrale, and ministries to conceal resources at their disposal and to request more inputs than they really needed. Managers concealed surplus operating reserves to ensure production in the event of unforeseen bottlenecks. This practice made accurate inventories impossible, resulting in inefficient use of resources.

Pricing and Profit

Because the market forces of supply and demand did not operate in the centrally planned command economy, prices were calculated and assigned to goods and services by a governmental body, whose decisions were shaped by political and ideological considerations as well as economics. Following the tenets of Marxism, prices for basic necessities had been maintained at artificially low levels throughout the postwar period until 1982, when 220 different food items were marked up 35 percent. Even after the increases, however, food was priced below the cost of production, and state subsidies were required to make up the difference. At the same time, prices for what the party categorized as luxury goods--blue jeans, stereo equipment, cars, refrigerators--were far higher than justified by production costs. Consequently, per capita ownership of consumer durables was the lowest in Eastern Europe except for Albania.

The inflexible system of centrally controlled prices created serious economic dislocation. Lacking the free-market mechanism of self-adjusting prices to regulate output, the economy misallocated resources, producing surpluses of low-demand items and chronic shortages of highly sought products, including basic necessities. This serious failing notwithstanding, the Ceausescu government in the late 1980s adamantly refused to modify the system and in fact was moving to strengthen the role of central planners in setting prices.

Wholesale and retail prices were assigned by the State Committee for Prices, with representation from the State Planning Committee, the Ministry of Finance, the Ministry of Foreign Trade and International Economic Cooperation, the Central Statistical Bureau, and the Central Council of the General Trade Union Confederation. The committee computed the price of an item based in part on normative industry-wide costs for the materials, labor, and capital used in its production. In addition, the price included a planned profit, which was a fixed percentage of the normative production cost. After a pricing revision, approved by the GNA in December 1988, the profit rate was set at between 3 and 8 percent of cost. An additional profit margin was factored into the price of commodities destined for export--6 percent for soft-currency and 10 percent for hard-currency exports.

Because prices were based on industry-standard costs, enterprises with lower than average costs earned above-plan profits, but those with high costs ran deficits and had to be supported by state subsidies. The New Economic and Financial Mechanism had called for making all enterprises self-financing, and those unable to break even were subject to dissolution. But as of early 1989, no instances of plants closing because of unprofitability had been reported. A pricing law enacted in December, 1988, would allow enterprises to retain all above-plan profit earned in 1990 but would require them to transfer half of such profits to the state budget during the subsequent four years. The enterprises channeled their share of profits into various bank accounts and funds that provided working capital and financed investments, housing construction, social and cultural amenities, and profit sharing. The last fund paid bonuses to employees if any money remained following compulsory payments to the state and the other funds. But if an enterprise failed to meet its production target--an increasingly common occurrence in the 1980s--the profitsharing fund was reduced accordingly.

The State Budget

The Ministry of Finance directed the formulation of a detailed annual state budget, which was submitted to the GNA for approval and enactment into law. In theory, budget allocations took into account the analyses performed by the branch coordinating councils, the various ministries, their subordinate centrale and enterprises, and the executive committees of judet and municipal people's councils. But in reality, as the instrument for financing the Unitary National Socioeconomic Plan, the state budget was under Ceausescu's firm control. The Council of Ministers had responsibility for supervising its implementation. The state budget typically was approved in December and went into effect on January 1, the beginning of the fiscal year, with expected revenues precisely offsetting authorized expenditures. Actual revenues and expenditures realized during the preceding year were officially announced at the same time, and the balance was carried over into the new state budget. Revenue estimates were set at the minimum level, while expenditures represented absolute ceilings. Consequently, budget surpluses were not unusual, particularly during the austere 1980s, when the top economic priority was elimination of the foreign debt. For example, a total surplus of 102 billion lei was accumulated during the years 1980-84, and in 1987 alone a 53.2 billion lei surplus was registered.

The consolidated state budget was divided into national and local budgets. In 1989 local budget revenues were forecast to be 25,446.8 million lei, while expenditures were set at only 14,078.7 million lei. The surplus of more than 11 billion lei was to be transferred to the national treasury to finance "society's overall development," a euphemism for centrally controlled capital investment at the expense of consumer goods and services.

Revenues

Profits from state enterprises and heavy turnover taxes levied on consumer goods, farm products, and farm supplies accounted for the bulk of revenue for the state budget. In 1989, for example, these two sources were expected to generate 69 percent of total revenues. Another large contributor was the tax on the "overall wage fund," which, though paid by the enterprises rather than individuals after 1977, was actually a tax on the work force. During the 1980s, taxes levied directly on individuals accounted for an ever larger share of revenues. For example, between 1981 and 1988, personal taxes rose by a total of 64.8 percent. The official claim that individuals paid only about 1.2 percent of the total tax bill ignored the reality that both the tax on the wage fund and the turnover tax directly affected individual purchasing power. The source of a large part of budget revenues was not identified in official announcements. In the 1989 state budget, for example, more than 6.3 percent of total revenues were not explained.

Expenditures

Financing the national economy (including capital investment) claimed the largest share of the state budget throughout the postwar period. More than 43 percent of the 1989 state budget, for example, was earmarked for this purpose. Social services were the second largest recipient, getting slightly more than 25 percent of 1989 budget allocations. Actual outlays for social services, however, had declined during the belt-tightening of the 1980s. Reliable figures for military expenditures were generally not available, although according to official pronouncements, they were modest and declining as a percentage of total outlays, accounting for less than 3 percent of the 1989 budget, as compared with 6.1 percent in 1960. Allocations for the police and security service were never published. A large portion of total budgetary expenditures (more than 27 percent) was not itemized in the 1989 state budget, as compared with 14.8 percent not itemized in the 1984 budget and only 1.7 percent in 1965.

Romania

Romania - Banking

Romania

The Role of Banking in a Centrally Planned Economy

The banking system was nationalized soon after the installation of the communist regime and replicated the system that had evolved in the Soviet Union. Although organizational reforms were instituted in the course of the following four decades, the basic mission of banking and its relationship to the rest of the economy remained unchanged.

The role of banking in the Stalinist economic model differs markedly from that in a market economy. Banks are state owned and operated and are primarily an instrument of economic control. They do not compete for customers; rather, customers are assigned to them. Nor are they in business to make a profit, because in the absence of money and capital markets, there is no mechanism to assign an accurate price for credit and thereby earn a fair profit.

Economic reforms in the late 1970s assigned greater responsibility to the banks for policing the economy to ensure that enterprises were operating and developing in compliance with the national plan. The banks accomplished this mission by monitoring enterprises' operations and assessing financial penalties for inefficient use of resources. As one of the three principal sources of money to finance operations and investments--the others being state budget allocations and profits retained by enterprises from the sale of commodities--banks exercised considerable influence over all economic units.

Banking institutions

The banking system in 1989 consisted of the National Bank of the Socialist Republic of Romania (known as the National Bank), the Investment Bank, the Bank for Agriculture and Food Industry, the Romanian Foreign Trade Bank, and the Savings and Consignation Bank. In addition, a centralized Hard Currency Fund was set up in January 1988 to supervise all transactions involving hard currencies and to control the use of hard-currency earnings to finance imports. The new body included representatives of the National Bank, the Foreign Trade Bank, the Ministry of Finance, and the Ministry of Foreign Trade.

Established in 1880, the National Bank was the heart of the banking system. It issued the national currency, set exchange rates, monitored the flow of money, managed budgetary cash resources, coordinated short-term credit and discount activities, and participated in the formulation of annual and five-year credit and cash plans in cooperation with the State Planning Committee and the Ministry of Finance. All industrial, transportation, and domestic trade enterprises maintained accounts in the National Bank. The bank also controlled the production, processing, and use of precious metals and gems and had exclusive authority to purchase from individuals items made of precious metals or stones and items of artistic, historic, or documentary value.

The Investment Bank, established in 1948, was the conduit by which investment resources--including state budget allocations-- were directed to individual state, cooperative, consumercooperative , and other public organizations except for foodindustry and agricultural enterprises. With hundreds of affiliates throughout the country, the Investment Bank adjudicated loan applications from enterprises and granted long-term investment credit after verifying that the money would finance projects consistent with the national economic plan. The bank reviewed technical and economic investment criteria and evaluated the feasibility of proposed investment projects on the basis of accepted standards. In theory, it approved only investment projects that satisfied all legal requirements regarding need, suitability, and adherence to prescribed norms; had an adequate raw materials base and assured sales outlets; and served to improve the economic performance of the organization undertaking the project. The bank also granted short-term credit to construction enterprises and to geological prospecting and exploration organizations. The Investment Bank was responsible for calculating capital depreciation allowances to be paid by the central government to the accounts of individual enterprises.

The Bank for Agriculture and Food Industry was created in May 1971 by expanding the functions and changing the name of the Agricultural Bank established three years earlier. The bank provided investment and operating credits for food-industry enterprises, state and cooperative farms, and private farmers and financed the distribution of agricultural products within the country.

The Savings and Consignation Bank, originally called the Savings and Loan Bank, held the savings and current accounts of individual citizens. The bank mobilized the cash resources of the population for investment through obligatory periodic transfers of deposited funds to the National Bank.

The Romanian Foreign Trade Bank was established in July 1968. In 1987 its deposits totalled nearly 168 billion lei. The bank collaborated with the Ministry of Finance to obtain and manage foreign credit, and it handled transactions in both foreign currencies and lei for import and export services and tourism. Through strict control of hard-currency allocations, the bank encouraged the substitution of domestic products for imports.

In 1972 eight French banks joined the Foreign Trade Bank in setting up the Paris-based Banque Franco-Roumaine, which had a founding capital of 20 million francs. Later that year, the AngloRomanian Bank with a founding capital of US$7 million was established in London. And in 1976, the Frankfurt-Bucharest Bank AG, with a founding capital of DM20 million was set up in Frankfurt.

Credit policy

The state banks alone possessed the legal authority to proffer credit, the essential function of which was to ensure the fulfillment of the goals set forth in the national plan. Unlike subsidies from the state budget, credits had to be repaid--with a small interest charge--according to a fixed timetable. Initially, the banks set interest rates at levels high enough merely to cover expenses, because it was not the function of interest to reflect the market value of money. But on January 1, 1975, a graduated scale of rates went into effect, whereby planned credits ranged from 0.5 to 5 percent; special loans to enable enterprises to meet their payment schedule ranged from 4 to 7 percent; and the rate for overdue loans went as high as 12 percent. Punitive surcharges were levied for delays in bringing investment projects into operation (2 percent) or for failing to free up unused machinery and equipment within six months (6 percent). Plant-modernization loans carried an interest charge of only 1 percent but were limited to 5 million lei per project and had to be repaid within four years.

Currency

In 1989 the official unit of currency, the leu (pl., lei), which consists of 100 bani, was valued at about 14.5 lei per US$1. In 1954 the government set the gold parity of the leu at 148.1 milligrams (where it remained as of 1989) and on this basis determined the official rate of conversion to Western currencies. But because Romania's centrally planned economy set prices independently of international economic forces, the official exchange rate quickly became divorced from reality. Thus, like the currencies of other Comecon states, the leu became a so-called "soft" currency--one that can not be used outside the country of issue.

In addition to being a soft currency, the leu had no unitary exchange rate consistently applied for all transactions. Bucharest used a bewildering range of conversion rates in order to pursue various economic objectives, such as fostering exports and tourism. Although the International Monetary Fund (IMF), which had loaned hundreds of millions of dollars to Romania in the 1970s, insisted that the policy of multiple exchange rates be discontinued, at least thirteen different rates were still in use in 1982--one rate for imports and twelve for export transactions. According to World Bank analysts in the late 1980s, however, it appeared that a unified commercial exchange rate for the leu was Bucharest's goal. A separate, bonus exchange rate continued to be offered to tourists. Both the commercial and noncommercial rates tended to remain in effect for long periods without the daily fluctuations that characterize hard currencies.

The state retained a monopoly on foreign exchange. Private citizens could not hold foreign currencies or securities or have bank balances abroad without official permission, nor could they import or export Romanian banknotes. They were forbidden to own or trade in gold, to export jewelry or diamonds, and to engage in foreign merchandise trade. All proceeds earned by foreign trade organizations were surrendered to the Foreign Trade Bank. All hard currency earnings were consolidated in the Hard Currency Fund, set up in 1988 to prevent foreign trade organizations, ministries, and enterprises from making unofficial hard currency transactions.

On the black market, which thrived throughout the postwar era, especially during the austere 1980s, barter was more effective than the official currency in procuring the most highly sought goods and services. Kent brand cigarettes emerged as the most universally accepted unofficial medium of exchange, a status they could attain because of the state's prohibition against private ownership of hard currencies. The street value of one carton of Kents in 1988 was approximately US$100. In the countryside, agricultural products became the de facto currency.

Romania

Romania - NATURAL RESOURCES

Romania

Land

The land itself is Romania's most valuable natural resource. All but the most rugged mountainous regions sustain some form of agricultural activity. In 1989 more than 15 million hectares-- almost two-thirds of the country's territory--were devoted to agriculture. Arable land accounted for over 41 percent, pasturage about 19 percent, and vineyards and orchards some 3 percent of the total land area.

Romania's soils are generally quite fertile. The best for farming are the humus-rich chernozems (black earth), which account for roughly one-fifth of the country's arable land. Chernozems and red-brown forest soils predominate in the plains of Walachia, Moldavia, and the Banat region--all major grain-growing areas. Soils are thinner and less humus-rich in the mountains and foothills, but they are suitable for vineyards, orchards, and pasturage.

The area under cultivation has increased steadily over the centuries as farming has encroached on forest and pasture areas, marshes have been drained, and irrigation has been brought to the more arid regions. By late 1986, Romania had extended irrigation to roughly one-third of its arable land, and a major campaign had been conceived to drain the Danube Delta and develop it into a vast agro-industrial complex of some 1,440 square kilometers. The area of arable land grew incrementally from about 9.4 million hectares in 1950 to slightly more than 10 million hectares in the late 1980s.

Another strategy to gain arable land was the controversial program of systematization of the countryside. This policy, first proposed in the early 1960s but seriously implemented only after a delay of some twenty years, called for the destruction of more than 7,000 villages and resettlement of the residents into about 550 standardized "agro-industrial centers," where the farm population could enjoy the benefits of urban life. Only those villages judged economically viable by the authorities were to be retained. Through eradication of villages, fence rows, and reportedly even churches and cemeteries, the government aimed to acquire for agriculture some 348,000 hectares of land.

At the very time the government was attempting to increase the area of arable land, countervailing pressures were exerted by urban development, which consumed large tracts for residential and industrial construction. In May 1968, a law was passed to prohibit the diversion of farmland to nonagricultural uses without the approval of the central government. The law reversed the previous policy of assigning no value to land in calculating the cost of industrial and housing projects. It did not, however, curtail the ideologically driven policy of industrializing the countryside, and some of the country's most fertile farmland was lost to development.

Postwar farming practices took a heavy toll on the country's soil resources. It was estimated in the late 1980s that because of unwise cultivation methods, 30 percent of the arable land had suffered serious erosion. Moreover, residual agricultural chemicals had raised soil acidity in many areas.

Water

Along with an abundance of fertile soil, Romanian agriculture benefits from a temperate climate and generally adequate precipitation. The growing season is relatively long--from 180 to 210 days. Rainfall averages 637 millimeters per year, ranging from less than 400 millimeters in Dobruja and the Danube Delta to over 1,010 millimeters in the mountains. In the main grain-growing regions, annual precipitation averages about 508 to 584 millimeters. Droughts occur periodically and can cause major agricultural losses despite extensive irrigation. The drought of 1985 was particularly damaging.

Despite relatively generous annual precipitation and the presence of numerous streams and rivers in its territory, including the lower course of the Danube, which discharges some 285,000 cubic feet of water per minute into the Black Sea, Romania experienced chronic water shortages throughout the 1980s. Water consumption had increased by over thirteen times during the preceding three decades, taxing reserves to the limit. The 1990 official forecast envisioned consumption of 35 billion cubic meters, very close to nominal reservoir capacity. Large-scale agriculture and heavy industry were the major water users and polluters. Personal consumption was restricted by the growing scarcity of unpolluted drinking water, which could be obtained from fewer than 20 percent of the major streams.

The Danube and rivers emanating from the Transylvanian Alps and the Carpathians represent an aggregate hydroelectric potential of 83,450 megawatts. Roughly 4,400 megawatts of this potential had been harnessed by the mid-1980s--mostly during the preceding two decades. Important hydroelectric stations were built on the Danube, Arges, Bistrita, Mare, Olt, Buzau, and Prut rivers. These stations generated roughly 16 percent of Romania's electricity in 1984. But chronically low reservoir levels in the 1980s, caused by prolonged drought and irrigation's increasing demand for water, severely limited the contribution of hydroelectric power to the national energy balance.

The country's water resources also were an increasingly important transportation medium. The government invested billions of lei in the 1970s and 1980s to develop inland waterways and marine ports. The Danube-Black Sea Canal, opened to traffic in 1984, was the largest and most expensive engineering project in Romanian history. Major investments were made to modernize and expand both inland and marine ports, especially Constanta and the new adjacent facility at Agigea, built at the entrance to the Danube-Black Sea Canal. Another important project--still under construction in the late 1980s--was a seventy-two-kilometer canal linking the capital city, Bucharest, with the Danube.

Forests

Over the centuries, the harvesting of trees for lumber and fuel and the relentless encroachment of agriculture greatly diminished the forestlands that originally had covered all but the southeastern corner of the country. Nevertheless, in the late 1980s, forests remained a valuable national resource, occupying almost 27 percent of the country's territory. Growing primarily on slopes too steep for cultivation, the most extensive forests were found in the Carpathians and the Transylvanian Alps. Hardwoods such as oak, beech, elm, ash, sycamore, maple, hornbeam, and linden made up 71 percent of total forest reserves, and conifers (fir, spruce, pine, and larch) accounted for the remaining 29 percent. The hardwood species predominated at elevations below 4,600 feet, while conifers flourished at elevations up to 6,000 feet.

Forestry had a long tradition in Romania, and for centuries timber was one of the region's primary exports. After World War II, the industry shifted its focus from raw timber to processed wood products. Increasingly aware of the economic value of the forests, the government established a Council of Forestry in 1983 to supervise afforestation projects and ensure preservation of existing woodlands. In 1985 afforestation work on a total of 52,850 hectares was completed.

Fossil Fuels

The late 1980s saw the rapid depletion of Romania's extensive reserves of fossil fuels, including oil, natural gas, anthracite, brown coal, bituminous shale, and peat. These hydrocarbons are distributed across more than 63 percent of the country's territory. The major proven oil reserves are concentrated in the southern and eastern Carpathian foothills--particularly Prahova, Arges, Olt, and Bacau judete, with more recent discoveries in the southern Moldavian Plateau, the Danube Plain, and Arad judet. Despite an ambitious program of offshore exploration, begun in 1976, significant deposits in the Black Sea continental shelf had yet to be discovered as of the late 1980s. Most of the country's natural gas deposits are found in the Transylvanian Plateau. The Southern Carpathians and the Banat hold most of the hard coal reserves, while brown coal is distributed more widely across the country, with major deposits in Bacau and Cluj judete, the southeastern Carpathian foothills, and the Danube Plain.

Total oil reserves in 1984 were estimated at 214 million tons. Western analysts interpreted consistently lower output figures and Romania's intense search for improved oil-recovery technology as evidence that reserves were being depleted rapidly. By the mid1980s , comparatively little oil was being burned for heat and electricity generation. Most of the domestically produced crude was being used as feedstock for refining into valuable gasoline, naphtha, and other derivatives.

As oil's share of the energy balance was declining during the 1970s and 1980s, natural gas and coal assumed increasing prominence. In the mid-1970s, Romania's natural gas reserves--the most extensive in Eastern Europe--were estimated at between 200 and 240 billion cubic meters. This resource was all the more valuable because of its high methane content of 98 to 99.5 percent. Natural gas and gas recovered with crude oil fueled about half of the country's thermoelectric power plants and provided feedstock for the chemical industry. Falling natural gas output figures in the 1980s suggested that this valuable resource also was being depleted. Romanian experts themselves predicted that reserves would be exhausted by 2010. The country had to begin importing natural gas from the Soviet Union in the mid-1970s. Annual imports had reached 2.5 billion cubic meters by 1986 and were expected to rise to about 6 billion cubic meters after 1989.

Although total coal reserves were estimated at 6 billion tons in the mid-1970s, much of this amount was low-quality brown coal containing a high percentage of noncombustible material. Only a fraction of the steel industry's considerable demand for coking coal could be covered by domestic sources.

Other Minerals

Romania possesses commercial deposits of a wide range of metallic ores, including iron, manganese, chrome, nickel, molybdenum, aluminum, zinc, copper, tin, titanium, vanadium, lead, gold, and silver. The development of these reserves was a key element of the country's industrialization after World War II. To exploit the ores, the government built numerous mining and enrichment centers, whose output in turn was delivered to the country's large and ever-expanding metallurgical and machinebuilding industries.

The major known iron ore deposits are found in the PoianaRusca Mountains (a spur of the Transylvanian Alps) and the Banat, Dobruja, and the Harghita Mountains (in the Eastern Carpathians). Though commercially significant, these deposits were unable to satisfy the huge new steel mills that were the centerpiece of Romania's industrial modernization after the mid-1960s. Indeed, by 1980 Romania had to import more than 80 percent of its iron ore. Some experts predicted that domestic iron ore resources would be exhausted by the early 1990s.

Most of the nonferrous metal reserves are concentrated in the northwest, particularly in the Maramures Mountains (in the Eastern Carpathians) and the Apuseni Mountains (in the Western Carpathians). The Maramures range contains important deposits of polymetallic sulfides--from which copper, lead, and zinc are obtained--and certain precious metals. The Apuseni range holds silver and some of the richest gold deposits in Europe. Major copper, lead, and zinc deposits also have been discovered in the Bistrita Mountains, the Banat, and Dobruja. Bauxite is mined in the Oradea area in northwestern Transylvania. Although new mines to extract these ores continued to be developed throughout the 1970s and 1980s, the proclaimed goal of self-sufficiency in nonferrous metals by 1985 was unrealistic, considering that in 1980 foreign sources supplied 73 percent of the zinc, 40 percent of the copper, and 23 percent of the lead consumed by Romanian industry.

The country also has commercial reserves of other minerals, which are processed by a large chemical industry that barely existed before World War II. The inorganic chemical industry exploits sulfur obtained as a metallurgical by-product or refined from gypsum, an abundant mineral. There are large deposits of pure salt at Slanic, Tīrgu Ocna, and Ocna Mures. Caustic soda, soda ash, chlorine, sulfuric and hydrochloric acid, and phosphate fertilizers are among the chemical products based on domestic raw materials.

Romania

Romania - LABOR

Romania

Distribution by Economic Sectors

A prerequisite for rapid economic growth after World War II was the wholesale transfer of labor from agriculture, which had employed 80 percent of the population before the war, to other sectors--primarily to heavy industry. The industrial work force grew by an average of 5 percent per year during the 1950-77 period, as Romania was accomplishing its most dramatic economic development, and industrial output was rising by an average 12.9 percent annually. As late as 1960, 65 percent of the labor force was still engaged in agriculture, with only some 15 percent working in industry and 20 percent in other sectors. But in the course of the following two decades, the labor force would be transformed, as peasants left the land in the wake of agricultural collectivization to take better-paid jobs in the cities. Between 1971 and 1978, the outflow of rural labor accelerated to 11 percent per year--more than twice the rate of the 1950s and 1960s.

By 1980 agriculture employed no more than 29 percent of the labor force, while industry occupied 36 percent and other sectors the remaining 35 percent. By this time the rural exodus had slowed, and although half the population continued to reside in rural areas, the reserves of able-bodied young men in agriculture had been reduced drastically. As a result, targets for expansion of the industrial labor force were unattainable, and agriculture was becoming the domain of the elderly and women.

Unpaid Labor

The rapid realignment of the work force created difficulties for agriculture, particularly during planting and harvest seasons. To compensate for the loss of farm workers, the government followed the Stalinist practice of mobilizing soldiers, young people, and even factory workers to "donate" their labor. Throughout the communist era, these groups have supplied unpaid labor that made possible the massive civil engineering projects launched after World War II. In 1988 more than 720,000 high school and college students and 30,000 teachers were detailed to agricultural work sites, and another 50,000 students and 2,000 teachers "donated" labor at construction projects.

Throughout the 1980s, the government appeared to be growing more reliant on compulsory labor, issuing a decree in August 1985 requiring all citizens to make labor and financial contributions to public works projects. At the same time, the military's role in the economy was also becoming more prominent. Soldiers worked on such important national projects as the Danube-Black Sea Canal, the Iron Gate hydroelectric project, and the Bucharest subway, as well as on more mundane details such as repairing streets and bringing in the harvest. After 1985, when Ceausescu militarized the electric power industry, army officers even became involved in the management of the civilian economy.

Demographics

Romania had a population of more than 23 million in 1987, but the active work force numbered about 10.7 million--an increase of only 550,000 workers since 1975. Women accounted for only about 40 percent of the labor force in 1988 and therefore represented the largest reserve of underused talent. After the mid-1970s, the rate of growth of the industrial labor force dropped significantly compared with the previous quarter century, falling from 5.1 percent in 1976 to 2.3 percent in 1980. Moreover, demographers forecast a growth of only 2.5 to 3.6 percent for the entire Eighth Five-Year Plan (1986-90).

Three major trends precipitated the slowdown in the growth of the labor force. First, the reserve of underused rural labor that could be transferred to the industrial sector was nearing depletion; the countryside had lost nearly half a million men in the four years between 1976 and 1979 alone. Second, Romania's birthrate--after Poland's, the highest in Eastern Europe--declined as urbanization proceeded, and despite the government's pronatalist policy, this trend was not reversed. And finally, large numbers of skilled workers were emigrating.

As in all of Eastern Europe and the Soviet Union, Romania's fertility level dropped significantly as urbanization brought more women into the work force and abortion became available on demand. In 1958 112,000 abortions were performed, but by 1965, the figure had skyrocketed to 1,115,000 annually, or approximately 4 abortions for every live birth. Realizing that a lower birthrate would inhibit economic growth, the government began instituting a pronatalist policy and in 1966 declared an end to abortion on demand. But abortions--legal and illegal--continued to be performed at a worrisome rate, reaching 421,386 in 1983. A relatively ungenerous incentive program to promote childbearing, instituted in the 1960s, had little positive effect. As a result, the birthrate declined steadily after 1967 and by the early 1980s had become a serious concern for Romania's economic planners.

Compared with the other communist regimes of Eastern Europe, Romania appeared to have a rather liberal emigration policy, but in the 1980s applicants for emigration increasingly were subjected to harassment and persecution. Most of the once-thriving Jewish community had been allowed to emigrate to Israel. In the late 1970s and throughout the 1980s, nearly 1,000 ethnic Germans were permitted to depart each month for the Federal Republic of Germany (West Germany). Large numbers of ethnic Hungarians illegally crossed into Hungary to escape economic and cultural oppression. Western diplomats in Belgrade claimed that as many as 5,000 refugees crossed into Yugoslavia each year, and that in 1988 some 400 persons were shot to death and many others drowned trying to swim across the Danube. Those seeking permission to leave legally often lost their jobs, housing, and health benefits and were forced to wait long periods for their exit papers. These harsh policies reflected the seriousness with which the regime regarded the loss of the country's skilled workers and its concern for the overall deterioration of the labor pool.

Productivity

Romania traditionally had one of the lowest levels of labor productivity in Europe. Agricultural units before World War II were small-scale and inefficient. Because of the high density of the rural population, much of the farmland had been subdivided into small parcels, making mechanization impractical. As a result, per capita farm output was low. Industrial labor productivity was somewhat higher. Employing less than 10 percent of the labor force in 1938, industry then produced 31 percent of total national income. The classic extensive development strategy pursued after the war accomplished gains in industrial output as a result of massive capital and labor inputs, not because of improved labor productivity and efficiency. But beginning in the late 1970s, as labor reserves dwindled, continued economic growth required substantially improved productivity. The government's inability to make significant gains in this area and to make the transition to an intensive development strategy was a primary cause of the economic crisis of the 1980s.

The postwar modernization process inevitably brought improvements in labor productivity in most sectors. Agriculture, however, because of the rapid loss of many of its most productive workers, underinvestment and neglect by the central planners, and peasant demoralization in the aftermath of forced collectivization, remained one of the least efficient sectors of the economy. Although agriculture still employed some 28 percent of the labor force in the mid-1980s, it accounted for only 14 percent of national income. And in 1980, Romania ranked no better than twentieth of twenty-three European countries in terms of output per hectare of farmland. Industrial labor productivity, on the other hand, improved steadily through the first three decades of communist rule, growing an average 7.9 percent per year between 1950 and 1977--primarily because of the acquisition of modern machinery and technology. These improvements notwithstanding, in 1985 Romania ranked last among the East European Comecon countries in terms of per capita gross national product (GNP).

Labor productivity growth rates slowed noticeably toward the end of the 1970s. The annual target of 9.2 percent for the Sixth Five-Year Plan (1976-80) proved unattainable. Instead, the government claimed to have achieved an annual growth of 7.2 percent--still a respectable accomplishment. The reliability of that figure, however, was questioned by Western analysts, who were becoming increasingly distrustful of official Romanian statistics. During the decade of the 1980s, the government set the unrealistic goal of doubling labor productivity by 1990. But this target would not be met, as the economy took a severe downturn. Western sources estimated, for example, that 1988 gross industrial output was no higher than and possibly lower than that of 1987, which in turn might have been lower than output in 1986. Because the government had predicated most of its ambitious economic growth targets on improved labor productivity, the poor results in gross industrial output indicated that the labor situation had not improved.

A number of factors underlay the chronically low productivity of Romanian labor. Foremost among these were the extreme degree of economic centralization, which gave workers little input in decisions that affected their working conditions and incomes, and the absence of rewards for personal initiative. The labor force endured low wages, few bonuses, ungenerous pensions, long workweeks, poor living conditions, and a general sense of powerlessness.

With an average per capita annual income of approximately US$1,000 in 1987, Romanian workers remained among the most poorly paid in Europe. Low labor remuneration, along with high taxes, and neglect of the consumer goods sector were deliberate government policies designed to accumulate funds for investment in the economy. Thus, while national income rose an impressive 9.2 percent per annum between 1951 and 1982, wages during the same period grew by only 4.9 percent. In 1983 Ceausescu, frustrated by persistent worker apathy, abolished fixed wages in favor of a policy that tied a worker's income directly to plan fulfillment by the enterprise. Previously every worker had been assured of receiving 80 percent of his or her nominal salary regardless of performance, with the remaining 20 percent dependent on the individual's productivity.

Rather than spurring the worker to produce more, the new remuneration policy in fact caused further demoralization because it invariably lowered wages. For example incomes fell by an average 40 percent at the Heavy Machinery Plant in Cluj-Napoca after the new policy went into effect. Workers were now being penalized for factors beyond their control, such as parts shortages and power failures. Their reaction was predictable. Passive resistance in the form of sloppy workmanship, excessive absenteeism, and drinking on the job became commonplace. More alarming to the government, however, were the scattered but sizable strikes and demonstrations that were occurring with greater frequency in the late 1980s. Across the country there were reports of work stoppages in protest of the new wage law. Following the November 1987 outbreak of riots at the Red Flag Truck and Tractor Plant in Brasov--precipitated by low wages, food shortages, and poor working conditions--Ceausescu announced that pay raises for all industrial workers and larger pensions would be phased in by the end of 1990. After the raises, the average worker theoretically would be earning 3,285 lei per month, and average monthly pensions would pay some 2,000 lei.

The Ceausescu regime's approach to the problem of labor apathy in the late 1980s ran counter to the wave of reforms that were being tested in other Comecon nations at that time. Rather than encouraging workers with monetary incentives that recognized differences in skills and productivity, in 1988 and 1989 Ceausescu offered modest wages that were graduated so that wage differentials between the highest- and lowest-paid workers were actually reduced. Wage hikes for the latter, averaging 33 percent, went into effect in August 1988, whereas increases of less than 10 percent for workers in the higher wage brackets were not scheduled to take effect until 1989. Instead of offering concessions that would improve their standard of living, Ceausescu continued to exhort the workers to sacrifice for the building of socialism and a better life for future generations. But these traditional motivational appeals were becoming less effective as life grew harder for most citizens.

Workers increasingly felt alienated from the institutions that were supposed to be defending their interests, particularly the PCR and its labor organ, the General Union of Trade Unions of Romania (Uniunea Generala a Sindicatelor din Romānia--UGSR), which they viewed as merely another control mechanism, a conduit for the downward flow of directives from the central planners. A survey taken shortly before the economic downturn of the late 1970s revealed that more than 63 percent of a sampling of 6,200 young Romanian workers felt their union was not representing their interests.

Because of the late emergence of a working class, Romania had little experience with grass-roots labor movements. In 1979, however, Paul Goma, a prominent exiled dissident, and three compatriots inside Romania -- Vasile Paraschiv, Theorghe Brasoveneau, and Ionel Cana--led an ill-fated attempt to organize an independent union. The PCR would not tolerate such a threat to its control of labor, and within a month, the three principal leaders had been arrested and the nascent union movement had been, at least temporarily, crushed.

In addition to low wages and nonrepresentation of the workers' interests, several other developments contributed to the growing disaffection of labor. For years the government had promised a shortening of the workweek, which was supposed to have been cut to forty-five hours by 1985. Although a forty-six-hour week was proclaimed in 1982, in practice most Romanians continued to work forty-eight hours or more. Adding to their misery, average workers wasted hours each day waiting in line for basic foodstuffs, gasoline, and other consumer items that were becoming ever more difficult to obtain.

Poor placement practices created immediate job dissatisfaction and were a primary cause of the high labor turnover rate. A survey of some 6,000 workers aged fourteen to thirty, taken in the relatively prosperous 1970s, revealed that more than half wanted to leave their jobs, and about one-quarter had already done so at least once. The problem of high turnover was most acute in the construction industry, where more than 28 percent of the work force quit their jobs during the 1982-86 period, and in the mining industry, which reportedly was hit even harder. To discourage turnover, the new wage system announced in September 1983 contained a provision that required newly hired workers to remain with an enterprise for at least five years. Failing that provision, they would forfeit a large share of their salaries, which had been withheld in compulsory savings accounts, and they would have to repay the enterprise for training expenses. But punitive monetary measures of this type proved ineffective in an economy that offered workers few consumer goods on which to spend their money.

Romania

Romania - FOREIGN TRADE

Romania

Goals and Policy

During the postwar era, Romania used foreign trade effectively as an instrument to enhance the development of the national economy and to pursue its goal of political and economic independence. In this context, earning a foreign-trade surplus was not a primary concern until the late 1970s. The primary goal, rather, was acquisition of the modern technologies and raw materials needed to create and sustain a highly diversified industrial plant. The export program was geared to earning the required hard currency to purchase these materials and technologies. But in the 1980s, the focus of foreign trade was shifted to curtail imports and run large hard-currency surpluses to repay the debt that had accrued in the previous two decades. Enterprises that produced for export received preferential treatment in resource allocation and higher prices for their output.

Foreign trade was a state monopoly. Trade policy was established by the PCR and the government, and its implementation was the responsibility of the Ministry of Foreign Trade and International Economic Cooperation. Subordinate to the ministry were special state agencies--foreign-trade organizations--that conducted all import and export transactions. In 1969 the ministry was reorganized to become essentially a coordinating agency, and within a year only three foreign-trade organizations remained under its direct control. This decentralization was short-lived, however, as the number of foreign-trade organizations was reduced from fifty-six in 1972 to forty in 1975, and all but four of these were returned to the ministry's control.

Trading Partners

Before World War II, the West accounted for more than 80 percent of Romania's foreign trade. During the postwar period up to 1959, however, nearly 90 percent of its trade involved Comecon nations. The Soviet Union was by far the most important trading partner during this period. But the PCR's insistence on autarkic development led Romania into direct confrontation with the rest of the Soviet bloc. In the late 1950s and early 1960s, Soviet leader Nikita Khrushchev had envisioned an international division of labor in Comecon that would have relegated Romania to the role of supplier of foodstuffs and raw materials for the more industrially developed members, such as the German Democratic Republic (East Germany) and Czechoslovakia. In April 1964, however, General Secretary Gheorghe Gheorghiu-Dej threatened to take Romania out of Comecon unless that organization recognized the right of each member to pursue its own course of economic development.

As early as the 1950s, Gheorghiu-Dej had begun to cultivate economic relations with the West, which by 1964 accounted for nearly 40 percent of Romania's imports and almost one-third of its exports. When Ceausescu came to power in 1965, the West was supplying almost half of the machinery and technology needed to build a modern industrial base. In 1971 Romania joined the General Agreement on Tariffs and Trade (GATT) and the following year it won admission to the IMF and the World Bank. In 1975 Romania gained most-favored-nation trading status from the United States.

Between 1973 and 1977, Romania continued to increase its trade with the noncommunist world and initiated economic relations with the less-developed countries. In 1973 about 47.3 percent of its foreign trade involved the capitalist developed nations, with which it incurred a large trade deficit that necessitated heavy borrowing from Western banks. During this period, major obligations to the IMF (US$159.1 million) and the World Bank (US$1,502.8 million) were incurred.

To gain greater access to nonsocialist markets, Romania set up numerous joint trading companies. By 1977 twenty-one such ventures were in operation, including sixteen in Western Europe, three in Asia, and one each in North America and Africa. Romania held at least 50 percent of the start-up capital in these companies, which promoted its manufactured goods and agricultural products abroad. In 1980 Romania became the first Comecon nation to reach an agreement with the European Economic Community (EEC), with which it established a joint commission for trade and other matters.

During the 1980s, however, trade relations with the West soured. Ceausescu blamed the IMF and "unjustifiably high" interest rates charged by Western banks for his country's economic plight. For its part, the West charged Romania with unfair trade practices, resistance to needed economic reform, and human rights abuses. In 1988 the United States suspended most-favored-nation status, and the following year, the EEC declined to negotiate a new trade agreement with Romania. Meanwhile, attempts to increase trade with the less-developed countries had also met with disappointment. After peaking in 1981 at nearly 29 percent of total foreign trade, relations with these countries deteriorated, largely because the Iran-Iraq War had cut off delivery of crude oil from Iran.

Frustrated by the downturn in trade with the West and the lessdeveloped countries, Romania reluctantly returned to the Soviet fold during the 1980s. By 1986 socialist countries accounted for 53 percent of its foreign trade. But the Ceausescu regime continued to assert its independence, refusing to endorse the Comecon program that would allow enterprises to circumvent routine bureaucratic channels and establish direct business relationships with enterprises in other member countries. And he refused to cooperate in Comecon attempts to establish mutual convertibility of the currencies of the member states.

Structure of Exports and Imports

The assortment of export products changed dramatically during the postwar era. Before the war, raw materials and agricultural products accounted for nearly all export income, but in the 1970s and 1980s, the primary exports were metallurgical products, especially iron and steel; machinery, including machine tools, locomotives and rolling stock, ships, oil-field equipment, aircraft, weapons, and electronic equipment; refined oil products; chemical fertilizers; processed wood products; and agricultural commodities.

Retirement of the Foreign Debt

After 1983 Ceausescu refused to seek additional loans from the IMF or the World Bank and severely curtailed imports from hardcurrency nations while maximizing exports--to the great detriment of the standard of living. As a consequence, Romania ran balanceof -trade surpluses as large as US$2 billion per year throughout the rest of the decade. With great fanfare, Ceausescu announced the retirement of the foreign debt in April 1989, proclaiming that Romania had finally achieved full economic and political independence. Shortly thereafter, the GNA enacted legislation proposed by Ceausescu to prohibit state bodies--including banks-- from seeking foreign credits.

Romania

Romania - INDUSTRY

Romania

Geographic Distribution

The development program sought to distribute industrial capacity evenly across the country. This policy of disaggregation often appeared counterproductive to western observers. For example, by sitting a vast steel complex at Calarasi, some of the most valuable farmland in the country had to be sacrificed. But the PCR argued that dissemination of industry into the countryside was necessary to transform Romania from a peasant society to a proletarian society, one of the prerequisites for attaining communism.

The campaign to industrialize all regions was moderately successful. In 1968 nearly half of the forty judete reported per capita industrial output of less than 10,000 lei, but by 1990 no judet was expected to produce less than 50,000 lei per capita. In addition to the Bucharest agglomeration, which accounted for nearly one-seventh of total industrial output in 1986, major industrial centers had been built in many other regions of the country. Measured in value of industrial output, the ten leading judete in 1986 were Bucharest, Prahova, Brasov, Arges, Bacau, Galati, Timis, Hunedoara, Sibiu, and Cluj--in that order. These ten judete accounted for 51.2 percent of industrial production in 1986. The ten most industrially developed judete, with 48.2 percent of all fixed industrial assets in 1986, were Bucharest, Galati, Prahova, Hunedoara, Brasov, Gorj, Arges, Bacau, Dīmbovita, and Dolj. On the other hand, the ten least developed judete, Satu Mare, Botosani, Calarasi, Ialomita, Bistrita-Nasaud, Covasna, Vrancea, Harghita, Salaj, and Vaslui, had only 8.9 percent of the fixed industrial assets.

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Romania

Romania - Energy

Romania

Crisis of the 1980s

Despite significant energy resources and an extensive industry to exploit them, the sector performed poorly during the 1980s, seriously damaging economic performance as a whole and causing great hardship for the population. In 1986, for example, electricity production fell 2.6 percent below target; this poor performance resulted in an estimated 4.7 percent reduction in national income. Not only was the goal of energy self-sufficiency by 1990 not fulfilled, all trends indicated that in the 1990s Romania would be increasingly dependent on imported fuels and electricity--especially from the Soviet Union. The sector performed so poorly that Ceausescu issued a decree in 1985 militarizing the energy industry. That decree stated that a military commander and subordinate cadres would be assigned to each power plant to improve its efficiency and ensure uninterrupted operation.

The energy program for the 1980s called for drastically reducing reliance on oil and gas, while increasing the contribution of coal, hydroelectric power, nuclear power, and nonconventional sources. Romanian industry was among the world's least energy-efficient. Measures to reduce waste were largely unsuccessful, and the population bore the brunt of conservation, even though private households accounted for only about 6 percent of total consumption. During the 1980s, the government strictly rationed electricity, natural gas, gasoline, and other oil products, levying heavy fines for exceeding ration allotments.

Electric Power

Enormous investments made in the sector following World War II resulted in dramatic gains in capacity and output. Despite the impressive growth in output, averaging 8.3 percent annually between 1966 and 1985, however, the power industry did not keep pace with overall industrial growth, which averaged 9.5 percent annually during the same period. The result was an acute and worsening energy deficit.

Thermal power plants burning fossil fuels accounted for more than 80 percent of electricity output in the mid-1980s, and the development program envisioned an installed capacity of 16,518 megawatts at such plants by 1990. The largest thermal plants operating in the mid-1980s were located at Rovinari in Gorj judet, (1,720 megawatts), Turceni in Gorj judet, (1,650 megawatts), Braila (1,290 megawatts), Mintia in Hunedoara judet, (1,260 megawatts), Craiova (980 megawatts), Deva (840 megawatts), Ludus in Cluj judet, (800 megawatts), Borzesti in Botosani judet, (650 megawatts), Galati (320 megawatts), and Bucharest (300 megawatts). After 1965, thermal plants producing both heat and electricity were favored, and by 1984 their combined capacity exceeded 6,100 megawatts--roughly onethird of total installed capacity. A serious problem for thermal plants during the 1980s was the deteriorating quality of lignite fuel, which was damaging equipment and causing frequent shutdowns. At the start of the 1988-89 peak-demand season, only 45 to 50 percent of total installed generating capacity was operational.

Capitalizing on the country's considerable hydroelectric potential, the government built some 100 hydroelectric plants between 1965 and 1985, bringing total capacity to 4,421 megawatts. Nevertheless, it was estimated in early 1989 that only 35 percent of the technically feasible hydroelectric potential had been tapped. The most important project was the 2,100-megawatt Iron Gates I complex on the Danube. Built in collaboration with Yugoslavia, which operated a twin plant on the right bank, the project was completed in 1972. In 1977 the two countries began work on a much smaller Iron Gates II project (sixteen twenty-seven- megawatt generating units). Other important projects were the 220- megawatt Gheorghiu-Dej plant on the Arges River and a chain of fourteen smaller plants downstream with a combined capacity of 179 megawatts; the V.I. Lenin complex of twelve plants on the Bistrita River; a chain of plants along the 737-kilometer Olt River totalling more than 1,200 megawatts; a chain of sixteen plants on the Mare River with a total capacity of 536 megawatts; and numerous stations along the Buzau, Jiu, Prut, and other rivers.

To offset declining petroleum and gas reserves, the PCR pinned its hopes on nuclear power. But these hopes were partially frustrated by repeated setbacks in the construction of the first nuclear power plant at Cernavoda, which appeared unlikely to become operational before 1992. The Cernavoda plant would use five 660-megawatt Canadian-built reactors. The Canadians also had been engaged to build a nuclear station at Victoria-Brasov. In 1982 a contract was signed with the Soviet Union to build the Moldova nuclear plant, which would have three 1,000-megawatt reactors. And preparatory work began in March 1986 for construction of a nuclear plant at Piatra Neamt, to be equipped largely by the Soviet Union. As late as 1985, the government was anticipating that nuclear plants would be supplying 20 percent of the nation's electricity by 1990, when some 4,500 megawatts of capacity would be on line, but the long-range goal of building sixteen nuclear plants by 2000 appeared unattainable.

Geothermal, solar, wind, methane, and small hydroelectric installations produced the energy equivalent of nearly 450,000 tons of conventional fuel during the first three years of the Eighth Five-Year Plan (1986-90). The plan called for starting up some 240 alternative-energy installations during this period, including 125 solar and 70 methane plants. Methane accounted for over 80 percent of nonconventional energy production. In 1989 alternative energy sources were expected to double their output. The development program anticipated that such sources would contribute one-fifth of total energy capacity in 1995, when more than 60 percent of the geothermal, nearly 50 percent of the methane, and 63 percent of the small-stream hydroelectric potential would have been harnessed.

A transmission grid of 110-, 220-, and 400-kilovolt lines with a total length of about 27,000 kilometers in the mid-1980s distributed electricity throughout the country. Integrated into Comecon's Peace Unified Power System, the Romanian network was connected to the national grids of all neighboring states. In 1988 a 750-kilovolt transmission line built jointly with the Soviet Union and Bulgaria delivered some 5 billion kilowatt-hours of electricity to Romania from the South Ukraine Nuclear Power Station.

Oil and Gas

With the largest petroleum reserves in Eastern Europe, Romania was a major oil producer and exporter throughout much of the twentieth century. The oil extraction industry, developed primarily by German, United States, British, and Dutch companies, was the forerunner of the country's belated industrialization. In 1950 oil satisfied nearly half of total energy needs. Peak production was reached in 1976, gradually declining in subsequent years, as many of the country's 200 oil fields began nearing depletion and discovery of new reserves waned. Increasingly large quantities of crude had to be imported, and in 1979 imports surpassed domestic production for the first time. Despite an accelerated exploration program, with average drilling depths increasing to 8,000 to 10,000 meters, oil output declined from 308 barrels per day in 1976 to 227 in 1986.

Beginning in the late 1970s, Romania became one of only ten countries producing offshore oil-drilling rigs. In 1988 seven such platforms were operating in the Black Sea under the supervision of the Constanta-based Petromar enterprise to develop hydrocarbon reserves in the continental shelf.

During the 1970s, Romania invested heavily in developing an outsized oil-refining industry just as domestic petroleum production was beginning to decline and the world market price for crude was skyrocketing. Some observers estimated that by 1980 the country was losing as much as US$900,000 per day by exporting oil products derived from imported crude. But because these products found a ready market in the West--they accounted for 40 percent of exports to the West in the late 1980s--Romania continued largescale processing of imported crude to earn hard currency. By 1988 domestic crude output had fallen to 9.4 million tons, while refining capacity stood at some 30 to 33 million tons annually. To keep the refineries running, ever larger volumes of crude had to be imported--first from members of the Organization of Petroleum Exporting Countries (OPEC), but after the outbreak of the Iran-Iraq War, from the Soviet Union. Soviet crude deliveries reached about 6 million tons in 1986. Under the terms of a barter arrangement, Romania was to receive at least 5 million tons of Soviet crude annually during the 1986-90 period in exchange for oil-drilling equipment and food products.

The natural gas industry was unable to offset depletion of known reserves, and output declined from 1,216 billion cubic feet in 1976 to 940 billion cubic feet in 1986. Some Western experts believed that Romanian reserves could be exhausted as early as 1990. After it had begun importing gas from the Soviet Union in the mid-1970s, Romania obtained incrementally larger shipments; in 1986 it imported 2.5 billion cubic meters of Soviet gas. For its participation in projects to develop Soviet gas resources, Romania was expected to receive shipments of at least 6 billion cubic meters annually after 1989. In addition, as payment for transit rights for a 200-kilometer gas pipeline across Dobruja to Bulgaria, Romania would be receiving an unspecified amount of Soviet gas for a twenty-five-year period.

Coal

The energy program of the 1970s and 1980s aimed for dramatic increases in coal output to compensate for the reduced role of oil and natural gas in power production. The use of oil and gas in electricity generation was projected to drop from 50 percent in 1981 to 5 percent in 1990. When Romania's energy vulnerability had been revealed by the stoppage of crude oil shipments from Iran in the late 1970s, Ceausescu launched a campaign to expand coal production rapidly. Because of labor unrest in the Jiu Valley, the primary coal-mining region, he decided to develop other coal fields. But the coal from the new mines turned out to be of poorer quality and had a lower caloric content. Although a total of thirty-five new open-pit and underground mines began operating during the 1982-85 period, the initial output target of 86 million tons annually by 1985 had to be revised to 64 million tons, and actual production amounted to just 44 million tons. Even as late as 1988, only 58.8 million tons were mined. Poor mine-development methods, numerous accidents, pit flooding, equipment failure, and high labor turnover were the principal causes of the industry's disappointing performance.

Coal production could not keep up with industrial needs. Nearly three-fourths of coal output was burned by large thermoelectric power plants located at or near the major coal basins. Large quantities of coking coal had to be imported from the Soviet Union. In 1989 Hancock Mining Company of Australia signed a contract to deliver up to 6 million tons of coking coal annually for a twelveyear period.

Romania

Romania - Machine Building

Romania

Contributing about 35 percent of total industrial output in the 1980s, machine building had become the largest industrial sector. The Soviet Union and Comecon helped set up and outfit machinebuilding plants in the 1950s, but during the 1960s Romania began acquiring technology and know-how from the West. In the 1980s, however, many manufacturing ventures initiated with Western partners in the previous decade were on shaky ground or had already failed. As a rule, capitalist enterprises found both the output and quality of goods produced by these ventures unsatisfactory. Because of restrictions on imports, domestic industry was required to satisfy nearly 90 percent of the country's machinery and equipment needs during the 1980s.

In terms of both volume and diversity of output, the machinery sector was impressive. In 1982 Romania ranked tenth in the world in the production of machine tools and was the world's largest exporter of railroad freight cars and the third largest exporter of oil-field equipment. It was one of the few countries to build offshore-drilling platforms. A symbol of industrial sophistication, the giant rigs were assembled at the Galati shipyard using domestically manufactured components. And great strides had been made in the production of aircraft, electronic and electrical equipment, ships, and ground vehicles.

Aircraft Industry

The aircraft industry in Romania dates from 1925, when the first airplane factory began operation in Brasov. Following World War II, the few production facilities not retooled for other purposes built only light planes and gliders. But in 1968, in keeping with PCR aspirations of economic autonomy, the government revived production of heavy aircraft and established the National Center of the Romanian Aircraft Industry under the Ministry of Machine Building. The center oversaw the operation of airframe plants in Craiova, Bacau, Bucharest, and Brasov, and the Turbomecanica plant in Bucharest, where all the jet engines for Romanian-built planes were manufactured.

Romania was able to acquire both Western and Soviet technology to manufacture modern aircraft. The most successful projects involving such technology transfer included the Soviet-designed Yak-52 piston-engine two-seater (the primary trainer used in the Soviet Union) and Ka-126 agricultural-use helicopter; the Rombac 1- 11 airliner, built under license from British Aerospace using a fuselage designed by British Airways and a Rolls-Royce engine; Viper engines built under license from Rolls-Royce; and the Frenchdesigned IAR-316 Allouette III and IAR-330 Puma helicopters. A noteworthy example of homegrown aircraft design was the IAR-93 Orao combat aircraft and a later model, the IAR-99, which were developed jointly with Yugoslavia.

Automotive Industry

In 1965 a fledgling automotive industry produced only 3,653 passenger cars. In the 1980s, the industry consisted of three large auto assembly plants (at Pitesti, Craiova, and Cīmpulung in Arges, judet), eight subassembly enterprises, and more than 100 automotive parts factories. Production in 1988 amounted to 121,400 passenger cars and 17,400 trucks--well below the target set forth in the Eighth Five-Year Plan, which had anticipated an annual production of 365,000 automobiles by 1990.

A plant in Pitesti began assembling Dacia passenger cars in 1968 under license from Renault and turned out its millionth unit in 1985. In 1986 an affiliated plant in Timisoara began building a subcompact, the Dacia 500, using exclusively Romanian-designed and Romanian-produced components; the plant expected the car to compete on the world market beginning in 1990. Other automotive centers in the 1980s were Craiova (Oltcit automobiles produced under license from Citröen); Cīmpulung (Aro cross-country vehicles); Brasov (trucks and tractors); Braila (earthmovers); and Bucharest (vans and panel trucks). In 1989 negotiations were under way to set up a joint venture with two Japanese corporations to manufacture buses and trucks at a factory in Bucharest for sale to third-world countries.

Between 50 and 80 percent of the automotive industry's output during the 1980s was exported. Poor quality control, however, damaged the international reputation of Romanian vehicles. Hungary, a primary client, complained that 60 to 70 percent of Dacia cars delivered in 1986 were defective and required repairs before they could be sold to the public.

Locomotives and Rolling Stock

Claiming to be the world's largest exporter of railroad cars, Romania sold roughly 70 percent of its output to foreign clients during the 1980s, and during the 1970-84 period it exported more than 100,000 freight cars, 3,000 passenger coaches, and 1,500 locomotives. The Soviet Union bought the lion's share, including the entire output of 70-ton and 105-ton freight cars. The August 23 Machinery Plant in Bucharest, the largest manufacturing facility in the country, was a major producer of diesel-electric locomotives and railroad cars. Other important plants were located in Craiova in Olt judet, Arad, Drobeta-Turnu Severin, Caracal, Iasi, and several other cities. In the mid-1980s, a large new plant was built at Caracal to produce grain cars for export to the Soviet Union in exchange for electricity.

Machine Tools

Annual production of machine tools in the two decades after 1965 expanded more than six-fold in terms of tonnage. At the same time, ever more sophisticated units were manufactured, and the monetary value of output rose by a factor of thirty-one. During the 1980s in particular, Romania pushed to replace imported machinetool technology with its own products and began designing and building high-precision units featuring numerical control, automatic lines, and flexible processing cells. The Scientific Research and Technological Engineering Institute for Machine Tools, established in 1966, coordinated a successful research and design program that placed Romania among the world's top ten machine-tool manufacturers in the 1980s. Romania manufactured 35.5 percent of the universal and specialized machine tools on the Comecon product list--second only to the Soviet Union.

Computers and Automation Technology

The high-status automation-technology and computer industries received priority treatment during the 1970s and 1980s. Plants began producing a wide range of computers, peripherals, industrial electronic measuring equipment, and electronic control systems for domestic consumption and export--primarily to other Comecon and Third-World countries. In 1973 the United States firm Control Data Corporation set up a joint venture with the Bucharest Industrial Central for Electronics and Automation--known as the Rom-Control- Data Company--to manufacture and market computer disk drives and printers. The joint venture was among the most successful operating on Romanian territory and was earning an annual profit of 7 to 8 percent in the late 1980s. More than a dozen major automationtechnology plants and research centers were located in Bucharest by the mid-1980s, and facilities had also been built in such cities as Timisoara and Cluj-Napoca. In the late 1980s the Bucharest Computer Enterprise was producing fourth-generation Independent microcomputers, and its Felix models found application in machinetool control, data transmission, and robotics. Romania intended to double its production of computer equipment during the Eighth FiveYear Plan.

Electrical Engineering

Nearly half of Romania's electricity output was generated by Soviet equipment, and the Piatra Neamt nuclear plant, the construction of which began in 1986, was expected to use mostly Soviet-supplied components. It was not until 1970 that domestic industry was able to manufacture steam turbines larger than 6 megawatts, but by the 1980s Romania was producing 330-megawatt steam turbines, hydraulic turbines of all sizes, boilers, nuclear reactor components, transformers, and other power-engineering equipment. By then Romania had become the largest foreign supplier of electric power transformers to the Soviet Union. The major power-engineering plants included the Bucharest Heavy Machinery Plant, the Resita Machine-Building Plant, and the Vulcan enterprise in Bucharest.

Shipbuilding

After the mid-1960s, the shipbuilding program developed rapidly, as the industry made the transition from small-tonnage vessels to huge bulk-cargo and special-purpose ships. By the late 1980s, Constanta, the country's most important shipyard, was building 165,000-deadweight-ton ore carriers, 150,000-deadweightton oil tankers, sea-going railroad ferry ships, and offshoredrilling platforms. Other important shipbuilding centers were Mangalia (site of Romania's largest naval base) and several cities along the Danube--Drobeta-Turnu Severin, Oltenita, Giurgiu, Braila, Galati, and Tulcea--that built river craft and smaller ocean-going ships. In 1989 the Galati shipyard launched an 8,000- deadweight-ton roll-on/roll-off (Ro-Ro) container carrier--the first of its kind built in the country.

Romania

Romania - Metallurgy

Romania

Attaining self-sufficiency in steel to supply the vital machine-building industry was a primary economic goal after World War II. It was Romania's determination to pursue that goal and to build the Galati steelworks that precipitated the clash with Khrushchev and Comecon in 1964. Steel output rose from 550,000 tons in 1950 to 1.8 million tons in 1960 to 6.5 million tons in 1970. Despite this impressive growth, production fell short of demand, and the steel was of insufficient quality for many machine-building applications. Therefore the government decided in the early 1970s to build a state-of-the-art steelworks at Tīrgoviste using West German technology. In the second half of the decade, another large complex was built at Calarasi--again with Western technology. But the industry failed to reach its 1980 production target of 18 million tons, as the country headed into a general economic decline. Production in 1985 was 13.8 million tons, and in 1988 it was 14.3 million tons--still below target but sufficient to place Romania among the world's top ten producers on a per capita basis.

Romania also imported Soviet technology. Using Soviet rolling mills delivered in 1985, the Galati steelworks and the Republica works in Bucharest began manufacturing 1,420-millimeter seamless steel pipe for Soviet gas pipelines; Romania was the only nonSoviet Comecon member to obtain this technology. In the late 1980s, the Soviets also agreed to equip a new steel plant at Slatina.

The Soviet Union also became the chief foreign supplier of raw materials for the steel industry, including iron ore and coking coal. Because of its participation in the Krivoy Rog iron-ore development project, Romania was assured of receiving 27 to 30 percent of output from that complex up to the year 2000. Australia was another promising supplier; the Hancock Mining Company signed a contract to improve the ore-transloading facility at Constanta and to deliver 53 million tons of iron ore between 1988 and 2000.

Nonferrous metallurgy, which dates to pre-Roman times, became increasingly important after World War II. Output during the period of 1966-82 increased an average 8.1 percent annually. Nonferrous metals increased their share of total industrial output from 3.2 percent in 1966 to 4.0 percent in 1982. Following World War II, Romania built flotation plants at six new sites and modernized existing facilities. Major centers of the industry included Branesti in Galati judet, Baia Mare, Copsa Mica in Sibiu judet, Zlatna in Alba judet, Tulcea, Oradea, Slatina, and Moldova Noua in Caras-Severin judet. The copper and aluminum industries received special attention. Aluminum output increased by a factor of twenty-seven between 1965 and 1987. Construction of a major new aluminum combine, using Soviet technology, was under consideration in the late 1980s. New copper, titanium, and vanadium mines were also being developed to reduce dependence on imports. Through participation in projects to develop nonferrous metal resources in the Soviet Union and in a number of Third-World nations, Romania secured foreign supplies of critical ores.

Romania

Romania - Chemicals

Romania

The chemical sector developed rapidly after World War II and especially after 1965. Before the war, it generated less than 3 percent of total industrial output and its product list was limited to carbon black; hydrochloric and sulfuric acid; soda ash; caustic soda; and a few types of chemical fibers, paints, and lacquers. By the 1980s, the industry produced between 10 and 20 percent of industrial output and accounted for more than 25 percent of export earnings. The petrochemical branch was the heart of the industry, producing about half of total output. The largest petrochemical complexes were built at Ploesti and Pitesti, but numerous smaller production units were scattered across the country. With new plants at Turda, Tīrnaveni in Mures judet, Ocna Mures, and Govora in Vīlcea judet, Romania became the largest producer of sodium- and chlorine-based products in Comecon after the Soviet Union. New sulfuric acid plants were built at Copsa Mica, Victoria in Ialomita judet, and Navodari in Constanta judet.

In later years, Romania reduced its emphasis on bulk chemicals and focused on more sophisticated products, such as special plastics, synthetic rubber, chemical fibers, electrodes, pharmaceuticals, dyes, and detergents. The government also gave priority to artificial fertilizers, building plants at Valea Calugareasca in Prahova judet, Fagaras, Tīrnaveni, Navodari, Piatra Neamt, Victoria, Tīrgu Mures, Craiova, Turnu Magurele in Teleorman judet, and Slobozia. The Eighth Five-Year Plan (1986-90) called for doubling the production of agricultural chemicals.

Romania

Romania - Light Industry

Romania

Traditionally the leading products of this sector were processed foods, textiles and clothing, and furniture. In the 1980s, food-processing plants produced about 13 percent of total industrial output, and processed foods were a major source of foreign currency earnings. The trend of the 1980s was to locate such plants in agro-industrial centers near the source of agricultural products in order to reduce transport losses and streamline processing. Textiles and clothing accounted for about 12 percent of industrial output in the early 1980s, but much of this production was exported. A severe shortage of all items of apparel persisted within Romania throughout the 1980s. After 1981 the government stopped publishing production statistics for cotton and wool clothing, knitwear, underwear, hosiery, footwear, and similar items.

Furniture, especially wood furniture, had long been a major export product. In 1980, for example, Romania claimed to be the world's sixth largest furniture exporter. Important furnituremaking centers were Tīrgu Mures, Iasi, Tīrgu Jiu, Arad, and Oradea.

Romania

Romania - AGRICULTURE

Romania

Agricultural Regions

The historic provinces of Walachia, Transylvania, Moldavia, Dobruja, and the Banat have distinct soil and climatic conditions that make them suitable for different types of agriculture. The breadbasket of Romania is Walachia, which provides half the annual grain harvest and roughly half the fruit and grapes. Truck farming, especially in the Ilfov Agricultural District surrounding Bucharest, is also important. Despite the fertility of Walachia's soil, yields fluctuate considerably from year to year because of recurrent droughts. Transylvania, which receives more precipitation than Walachia, has poorer soils and more rugged terrain that restricts large-scale mechanized farming. Livestock raising predominates in the mountains, and potatoes and grains are the principal crops in the central basin. Moldavia has generally less fertile soil than Walachia and receives scant rainfall. Its primary crops are corn, wheat, fruit and grapes, and potatoes. The Banat region has a nearly ideal balance of rich chernozem soils and adequate precipitation. Grain, primarily wheat, is the principal crop; fruits and vegetables are also important. Dobruja, a region of generally inadequate rainfall, was becoming agriculturally more important during the 1980s, because much of the marshland in the Danube Delta was being drained and brought under cultivation. The traditional crops of Dobruja are grain, sunflowers, and legumes.

Major Crops

Corn and wheat (predominantly of the winter varieties) occupied nearly two-thirds of all arable land in the 1980s and about 90 percent of all grain lands. Corn, the staple of the peasant diet, was grown on 3.1 million hectares in 1987, while wheat was sown on 2.4 million hectares. Other important grains included barley (560,000 hectares), oats (70,000 hectares), rice (47,000 hectares), and rye (42,000 hectares). Among the major nongrain crops, the most widely grown in 1987 were hay (870,000 hectares), sunflowers (455,000 hectares), potatoes (350,000 hectares), soybeans (350,000 hectares), sugar beets (271,000 hectares), feed roots (70,000 hectares), corn silage (50,000 hectares), and tobacco (35,000 hectares). Wine and table grapes were widely grown, but the best vineyards were in Moldavia. Romania had gained a reputation for fine wines as early as the nineteenth century, and subsequently became one of the major producers of Europe.

Thanks to the increased use of fertilizers and plant-protecting chemicals and the expansion of arable land area through irrigation and drainage, grain output rose steadily from only 5 million tons in 1950 to between 20 and 30 million tons in the 1980s. How much grain was produced in the late 1980s was unclear because official figures had become unreliable. The Romanian government reported a 1987 grain harvest of more than 31.7 million tons, a record amount and far larger than the 1985 harvest of 23 million tons. The United States Department of Agriculture, however, estimated the 1987 harvest at only 18.6 million tons--well below the harvest of 1985.

Livestock

Prior to the dramatic increase in grain cultivation in the nineteenth century, livestock raising, sheep breeding in particular, was the most important economic activity in the country. But with the diversion of grazing land and a perennial shortage of fodder, livestock raising fell into decline. After a drastic reduction in livestock inventories in World War II, herds were gradually replenished, but the number of horses continued to decline, as agriculture became more mechanized. Cattle were raised throughout the country, particularly in the foothills of the Carpathians. Sheep predominated in the mountainous areas and Dobruja. Pigs, poultry, and rabbits were raised on a wide scale.

Private farmers, who produced a large share of livestock brought to market, operated under dire conditions. The state theoretically was obliged to provide fodder to the livestock breeders it contracted to fatten animals. But fodder and proteinrich mixed feeds were not made available in the necessary quantities, especially in the 1980s, when imports were drastically curtailed.

Fishing

The numerous rivers emanating from the central mountains, the Danube, the Black Sea coastal waters, and Lake Razelm in the Danube Delta provide rich fishing grounds. The lower Danube supplies roughly 90 percent of the total catch, about 80 percent of which is consumed fresh. In 1985 approximately 260,100 tons were produced, and the 1986 plan called for 380,100 tons. Fish farming was being practiced on an increased scale in the late 1980s, particularly in the Danube Delta, where more than 63,000 hectares were expected to be covered with fish ponds by 1990.

Farming Practices

By the mid-1980s, more than 30 percent of the country's 10 million hectares of cropland was irrigated. The remaining 7 million hectares were subject to recurrent and sometimes severe droughts, which were particularly destructive in the southern and eastern regions.

At the same time, large areas of land along the Danube and in its delta were waterlogged, and the government decided to drain much of this marshland and make it arable. The Danube Delta, covering more than 440,000 hectares, was being developed rapidly after 1984. By 1989 some 35,750 hectares had been made arable and large areas of pastureland had been created. By 1990 more than 144,000 hectares of the delta were expected to be useful agricultural land.

Poor crop rotation practices, with corn and wheat sown year after year on the same ground, led to serious depletion of soil nutrients, and supplies of chemical fertilizers were inadequate to restore the lost fertility. In the early 1980s, for example, only thirty-four to thirty-six kilograms of fertilizer were available per acre. Furthermore, much of the best farmland had been severely damaged by prolonged use of outsized machinery, which had compacted the soil, by unsystematic application of agricultural chemicals, and by extensive erosion.

During the first three decades of communist rule, agricultural planners ordered the slaughter of thousands of workhorses, which were to be replaced by more powerful tractors. Indeed, the number of tractors available to agriculture grew from 13,700 in 1950 to 168,000 in 1983. But with the onset of the energy crisis, the regime reversed its policy. A program adopted by the National Council for Agriculture, Food Industry, Forestry, and Water Management in 1986 called for increasing horse inventories by 90,000 head by the end of the decade and reducing the number of tractors in service by nearly one-third. By 1990, according to plans, horse-drawn equipment would perform 18 to 25 percent of all harvesting and virtually all hauling on livestock farms.

Farm Organization

Cooperative and state farms were the two primary types of farm organization, although a significant number of small private farms continued to exist in the 1980s. State farms accounted for more than 17 percent and cooperatives nearly 75 percent of all arable land. In 1982 cooperatives employed 2.2 million farmers, while state and private farms employed about 400,000 each.

The formation of state farms, which were intended to be the rural equivalent of socialist industrial enterprises, had begun as early as 1945. These ideologically favored farms received the best lands expropriated in 1949 and during the major collectivization campaign of the 1958-62 period, and they had priority access to machinery, chemicals, and irrigation water. Because of these advantages, state farms reported higher crop yields than did cooperative farms. Like other state enterprises, state farms operated according to the directives of the central government. Workers received a fixed wage in return for their labor on the farm and had no private plot rights. Their incomes in the 1980s approached those of urban workers.

Although cooperative farms owned their land and certain basic equipment, they had little more autonomy than the state farms. Their directors routinely accepted production directives from Bucharest with little objection. The cooperatives were told what crops to grow, how to grow them, and how much to deliver to the state. Many smaller cooperatives were ordered to combine into associations during the 1970s and 1980s to pool their assets. According to a decree issued by the Council of State, cooperative farmers were required to work at least 300 days per year on the cooperative, and they were subject to transfer to other farms or even to construction and lumber work sites if their own cooperative had no work for them. Between 40 and 60 percent of the average cooperative farm income was derived from the sale of products from private plots. Despite this supplementary income, cooperative farmers earned only about 60 percent as much as their counterparts on state farms in the 1980s. Cooperative farmers also had much smaller pension benefits.

As late as 1988 almost 9.5 percent of the country's 15 million hectares of agricultural land remained in private hands. As a rule, this land was located in relatively inaccessible mountainous regions, where use of heavy machinery was impractical. In addition, in 1988 cooperative farms reserved some 922,000 hectares (about 6 percent of all arable land) for private plots, which were cultivated by families working on the cooperatives. These plots averaged 1,500 square meters in area, but in rugged terrain they could be considerably larger. Thus in the late 1980s, the private sector was still cultivating more than 15 percent of the country's agricultural land--the highest total in Eastern Europe after Poland and Yugoslavia. Privately owned land could not be sold, nor could it be inherited by persons unable to tend it adequately.

Even official government statistics revealed that private agriculture was more than four times as productive as socialized agriculture in the cultivation of fruit; twice as productive in grain growing and poultry raising, and 60 percent more efficient in milk, beef, pork, and vegetable production. In 1987 the private sector produced half the sheep, 40 percent of the beef, 28 percent of the pork, and 63 percent of the fruit output.

Despite the higher productivity of private agriculture and its major contribution to total farm output, the Ceausescu regime systematically penalized the nonsocialist sector. At the very time most of the communist world was beginning to permit peasants to lease larger tracts for longer periods, Romania was actually reducing the area under private cultivation--from 967,500 hectares in 1965 to 922,841 in 1985. Beginning in 1987, an area of at least 500 square meters (or one-third) of each private plot was required to be sown in wheat, and the harvest was to be traded to the state for the yield from an equivalent amount of land cultivated by the cooperative farm. This policy was designed to discourage peasants from spending an inordinate amount of time cultivating their private plots instead of working for the cooperative. Its effect, however, was to further demoralize the farm population and thus make it less productive.

In the late 1980s, the systematization program aimed to subordinate privately owned land and private plots on cooperative farms to the regional agro-industrial councils and thereby tighten central control of private farming. Systematization would eliminate many of the plots, as villages were levelled to create vast fields for socialized farming. This policy directly contradicted the government's mandate in the 1980s that the population essentially feed itself by cultivating small plots (even lawns and public parks had been converted to vegetable gardens) and breeding poultry and rabbits.

Administration

Romanian agriculture in the late 1980s remained the most centralized in Comecon. A complicated and constantly changing network of overlapping state and party agricultural bureaucracies had evolved over the previous four decades. The Ministry of Agriculture set production targets and oversaw the distribution of resources among the judete. It became the frequent target of Ceausescu's ire and received much of the blame for agriculture's persistent problems. In 1978 the Congress of the Higher Councils of Socialist Agricultural Units and of the Whole Peasantry and its permanent bureau, the National Agricultural Board, were established. The apparent purpose of the new body was to approve and thereby legitimize the PCR's policy directives. The following year a joint party and state agricultural policy-making body was established--the National Council For Agriculture, Food Industry, Forestry, and Water Management. Meeting as frequently as four times a year in plenary session, the council provided a forum for Ceausescu to address thousands of agricultural specialists and functionaries.

In 1979 pursuant to the guidelines of the New Economic and Financial Mechanism enacted the previous year, a network of agroindustrial councils was set up to coordinate the activities of as many as five state and cooperative farms in an area served by a single state machinery station. A Stalinist holdover abandoned in the rest of Eastern Europe, these stations controlled access to tractors and other heavy equipment. In the 1980s the agroindustrial councils gained additional powers to coordinate agricultural production, food processing, research, and agricultural training. After 1980 judet and village people's councils bore responsibility for fulfilling agricultural production targets set in Bucharest. In each judet a General Directorate for Agriculture and Food Industry made assignments to individual state and cooperative farms.

Procurement and Distribution

State farms, like other socialist enterprises after the implementation of the New Economic and Financial Mechanism, were in theory self-financed and self-managed concerns that were expected to earn a profit while delivering assigned quantities of output to the state. In reality, few state farms in the 1980s could turn a profit, because the government's procurement prices were consistently lower than production costs. Cooperatives and private farmers, too, had large state-imposed quotas to fill even before satisfying their own food requirements. A 1984 decree specified the quantity of production to be delivered to the state by farmers. For example, potato growers were required to deliver three tons per hectare of land cultivated, and dairy farmers had to turn over 800 liters of milk per cow. To ensure compliance with the compulsory quotas, Ceausescu reinstituted the Department for Contracting, Acquiring, and Storing Farm Produce, which had been disbanded in 1956. The state was able to hold sway over individual farmers because it controlled the supply of fertilizers, herbicides, machinery, construction materials, and other inputs. To gain access to these materials, the farmer had to sign delivery contracts. Farmers who failed to comply with the delivery quotas even risked losing their land.

Farmers were permitted to keep for their own use any food remaining after their quotas had been filled, and they could sell the surplus at farmers' markets, where prices in the early 1980s were frequently five times the state procurement prices. A law passed in 1983 required peasants to obtain a license to sell their products on the open market, and it imposed a maximum commodity price of 5 percent above the state retail price. Disappointing harvests in the early 1980s convinced the government to raise procurement prices. As a result, peasant incomes rose by some 12 percent between 1980 and 1985, and farm output increased by about 10 percent. Private farmers in the mid-1980s were obliged to sell to the state 30 percent of the milk, 50 percent of the pork, 12 percent of the potatoes, and comparable shares of other commodities they produced.

Throughout the 1980s, a self-sufficiency program, mandated by the PCR, was in effect. Each village and judet was responsible for producing, to the maximum extent possible, the food needed by the local population. In reality the program was another means for procuring agricultural products for export. Nearly all the production from the three types of farms was confiscated by state procurement agencies, which then returned the amount of food the state deemed sufficient to meet the dietary needs of the village and judet. The quantity returned invariably was less than that delivered. The self-sufficiency program in effect reversed the rationalization of the 1970s, when regions specialized in the crops and livestock best suited to local conditions. Thus a portion of the prime grain lands of Walachia had to be diverted to truck farming, while cool, wet regions of Transylvania attempted to grow sunflowers. The self-sufficiency program seriously impeded the distribution of agricultural products among regions and damaged the domestic marketing system.

The party secretary of each judet was responsible for delivering a specified quota of food to the state. Because these individuals reacted in different ways to the countervailing needs of their constituents and the central authorities, there was considerable regional variation in food supplies. Many party secretaries began understating output figures so that less would have to be delivered to Bucharest and more would be available for the people of their judet. Aware of this regional variation, citizens made food-hunting forays into other judete hoping to find stores better stocked. Ceausescu ordered the militia to monitor the highways and railroads to prevent "illegal" food trafficking.

The Ministry of Agriculture and Food Processing itself was torn between a sense of responsibility to safeguard the interests of the agricultural sector and its obligation to fulfill the regime's mandate to maximize procurement. To resolve these conflicting loyalties, in February 1986 a separate Ministry of Food Industry and Procurement was established.

Consumption

Although gross agricultural output had been increasing at a rate four times higher than population growth between 1950 and 1980, food availability remained inadequate. In 1981 rationing was imposed for the first time since 1953, and it remained in effect throughout the decade, as the regime exported as much as possible to pay off the foreign debt. In 1985 the average citizen was eligible to receive 54.88 kilograms of meat and fish, 1.1 kilograms of margarine, 9.6 kilograms of cooking oil, 14.8 kilograms of sugar, 114.5 kilograms of flour, 45.3 kilograms of potatoes, 20 kilograms of fruit, and 114 eggs per year. In reality, most Romanians were unable to obtain even these scant rations, as the situation deteriorated even further in following years. The food supply program of 1988 enacted by the GNA provided for an annual per capita consumption of 38 liters of milk, 3.5 kilograms of cheese, 1.5 kilograms of butter, 128 eggs, 21 kilograms of sweets, 3.6 kilograms of rice, 500 grams of oatmeal, and 22 kilograms of cornmeal.

Reliable statistics on food consumption were not available during the 1980s. Comecon statistical reports omitted Romanian data after 1981. Romania's own statistical yearbooks stopped reporting figures for consumption of food and many other commodities, including clothing, appliances, automobiles, and bicycles. Ceausescu claimed in November 1988 that the daily per capita calorie intake of Romanians was 3,200 calories, which he termed excessive. He promised to improve food supplies in 1988 by slaughtering 8 million sheep and between 7.5 and 12.5 million hogs- -an unlikely proposal considering that the entire national inventory included only 18.6 million sheep and 14.3 million hogs.

Romania





CITATION: Federal Research Division of the Library of Congress. The Country Studies Series. Published 1988-1999.

Please note: This text comes from the Country Studies Program, formerly the Army Area Handbook Program. The Country Studies Series presents a description and analysis of the historical setting and the social, economic, political, and national security systems and institutions of countries throughout the world.


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